The Vertical Group Fined & Ordered to Revise WSPs in Wake of Trade, Records & Supervisory Violations

Attorney Advising Disclaimer

FINRA fined The Vertical Trading Group, a broker doing business as The Vertical Group, $27,500 and ordered the firm to revise its written supervisory procedures (WSPs) after discovering numerous failures during a one-week review period, including inaccurate reporting, failure to provide customers with necessary documents and failure to supervise in compliance with applicable FINRA and SEC rules.

FINRA Case #2012031644401

According to the findings, between March 5 and March 9, 2012, The Vertical Group submitted inaccurate account types and incorrectly indicated orders were directed by a customer to be routed to a specific market center 35 times. The firm allegedly submitted duplicate reports to FINRA's Order Audit Trail System (OATS) and even incorrectly submitted to OATS one designation of "riskless principal" that FINRA claims was not properly classified in violation of FINRA Rule 7450.

FINRA also found that The Vertical Group failed to report sales transactions to the required FINRA/OTC Trade Reporting Facility with accurate short sale indicators in 157 instances and additionally failed to report a transaction altogether while inaccurately reporting executing capacity 38 times.

Investigators further claim that in 32 separate instances, The Vertical Group failed to provide its customers with confirmation and/or account statements as required by FINRA and SEC rules, while also inaccurately denoting customer confirmation disclosures including market making status, compensation type, executing capacity and stating that transactions were executed at an average price when they were not.

Finally, FINRA cited multiple failures concerning the firm's WSPs, alleging inadequate provisions in the areas of best execution, sales transactions and the maintenance of accurate books and records. Enforcement specifically found the firm failed to provide for one or more of the WSP requirements pursuant to FINRA and SEC rules, including specific identification of individuals with supervisory responsibility, steps taken and reviews completed by said supervisory, frequency of reviews and how those reviews are documented.

A combination of deficient WSPs and recordkeeping failures may be related to FINRA's conclusion that The Vertical Group failed to provide documentary evidence concerning supervisory reviews of order handling and use of market participant identifiers (MPIDs).

The Vertical Group previously received disciplinary sanctions in 2010 for violations related to improper conduct during the Trading and Market Making Surveillance (TMMS) examinations in 2007 and 2008, while in 2009, the firm was fined for similar violations relating to TMMS exams in 2006 and 2007.

If you have invested with broker-dealer The Vertical Group or with any other firm whose reporting deficiencies or failure to provide required accurate and timely customer documents, such as confirmations and account statements, has proven harmful to your investments or interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for investigation and consultation.

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